Novi Russky RIP

(Business New Europe – bne.eu – Ben Aris in Moscow – December 18, 2013) Russian joke from the 1990s: Two Novy Russkis (New Russians) meet on the street. “Nice tie. How much did it cost?” the first asks the second. “Its Hermes. It cost a $100!” answers the second. “You’re crazy! I know where you can buy the same one for $200!” replies the first.

In the early 1990s, the nouveau riche loved nothing better than to show off their newly acquired wealth. The trouble was that hidden behind the Iron Curtain for some 70 years they had no idea of what “style” meant and typically chose crass and ostentations. It started with designer track suits and passed through shell suits before reaching Armani suits (but you left the tailor’s label on the outside of the sleeve so everyone knew it was Armani.) The more conspicuous the consumption was, the better, giving rise to a plethora of jokes like the above.

This is not the first time that Russia has been through this. After Lenin’s communist regime nearly collapsed in the early 1920s, he briefly reintroduced the free market under the New Economic Policy (NEP). The shortages and collapsed supply chain meant fleet-of-foot traders and entrepreneurs made fortunes overnight — and these so-called NEPmen were every bit as obnoxious as their 20th century peers.

Stalin abruptly ended the reign of the NEPmen, but today the Novi Russky has simply died out as companies shift their attention to the relatively poorer, but far more numerous, emerging middle class; nouveau riche may pay a lot for ties, but there is far more money to be made from selling toys to white collar workers these days, according to a survey from Landor Associates, a global brand consultancy.

“The stereotypes of Russians, ravenous for Rolexes, formed during the 1990s have long since receded. Today, the Russian consumer is a far more complex proposition. Our 2,000 respondents have demonstrated that Russia remains a land of contrast and contradiction, where branding-building is now more important than ever,” says Landor’s country director for Russia, Emma Beckmann.

The Landor’s “Russian Consumer Report 2014” explores Russia’s attitudes to shopping and brands, and found that the majority of are suspicious of luxury brands and far more focused on finding a balance between quality and value-for-money than simply buying something because it has a well-known name. Only 17.5% of respondents preferred premium or luxury goods. Value for money was the key purchasing driver for 70% of those who participated in the survey. “The results reveal Russian consumers are acutely aware of quality, price and the provenance of branded products and services. They are no longer enthralled by luxury products and favour Russian brands over Western rivals in many key categories,” the report says.

Indeed, brands are not only failing to make headway, they may even be in retreat. As Russians don’t suffer from the marketing bombardment that dominates the media in the West, the survey found that the obvious gap between quality and price is making them “sceptical about the value of premium products.”

Brand loyalty is not well established in Russia, with a third of Russians surveyed saying they regularly switch brands to try new products, especially fast moving consumer goods (FMCG). Less than a third of consumers feel any attachment to things like soft drink names and less than a quarter identify with a snack product.

Western brands have failed to establish themselves on the Russian market, with a few exceptions like electronics and cosmetics, which remain the preserve of western companies, as they face no significant competition from Russian companies. While many of the best known brands can charge two or three times the price for goods that closely resemble a generic rival, Russians are less impressed by the name or the label, and will chose the cheaper option simply because it is cheaper but of similar quality.

Another quirk is that if there were quality Russian electrical goods or lipsticks, then Russians would probably buy them: there is a marked “product nationalism” amongst Russian consumers. “Almost half (45%) believe that Russian brands understand what’s right for Russians better than Western brands do,” the survey says.

Russians may be less impressed by fashionable names, but they will always prefer a Russian-made alternative product if one exists. Russians showed a preference for homemade products in 14 of the 22 sectors surveyed. “Russian consumers remain loyal to domestic goods across in most key consumer categories,” the survey found. “But Western brands still outperform domestic products on key metrics, like quality and innovation.”

This is particularly true of food products where Russian produce is seen as “more natural”, and about 75% of those surveyed said they spend “quite lot” or “a lot” of their monthly pay package on food products. Moreover, three-quarters also said they were prepared to pay a premium for quality food products. Perhaps this fussiness over what they eat is rooted in the fact that so many Russians grow their own food at their dachas (summer houses); in the 1990s, half of Russian agricultural produce came from kitchen gardens.

Russians are equally fussy about what they buy for their children, which is the third biggest household expenditure after food and rent. Given the choice, Russians will spare no cost when it comes to buying things for their kids; half the respondents said they choose premium children goods and only 14% go for low cost.

This is maybe one of the biggest differences between western and Russian consumers: low prices are a big selling point in the West, whereas in Russia a concept of something being “cheap” is a huge negative. Low cost is a pejorative to most Russians and the market is not ready for “discount” or “factory” stores.

The survey also found that e-commerce is growing rapidly in popularity, but the Russian consumer is still at an early stage of evolution when it comes to what they are willing to buy online. A third of Russian punters are happy to buy “consumer commodities” online like plane or theatre tickets, and three-quarters of Russians now pay their taxes online, according to the government. However, only half of those surveyed said they buy clothes online and a mere 20% order groceries from a site, even if they know the shop.

Another quirk that the survey reveals is that while men make the majority of the purchase decisions for big ticket items like houses, cars and especially alcohol, women buy all the household goods — except when it comes to food, for which most of the purchasing decisions are made jointly by husband and wife.

At the other end of the scale, the place where brands are strongest are predictably in clothes, footwear and apparel, which have been supported by heavy advertising in magazines like Cosmopolitan, which set up in the very early 1990s. “I think we have educated a whole generation of Russian women about cosmetics and fashion,” David Hearst, of the publishing dynasty that owns the magazine, told bne during a party to celebrate the tenth anniversary party of the local publisher Independent Media’s.

Perhaps unsurprisingly, Russians in the survey were most critical of the standard of service in Russia. While just over half of respondents say the quality of service has improved, they still say the quality of service remains well below western standards: 84% of respondents said Russian service is sub-par compared with Western Europe, with 34% saying it was “much worse.” This result may be driven by the fact that Russians are great holidayers and the vast majority have travelled overseas in the last decade, so can directly compare standards at home with elsewhere.

Landor reviewed buyer behavior in 11 areas, ranging from customer service to online retail and brand loyalty. More than 60 questions were addressed to 2,000 consumers across the country, spanning all demographics.